Shame, Regret, and Contract Design
Eric A. Zacks
Wayne State University Law School
January 16, 2014
Marquette Law Review, Vol. 97, Spring 2014, Forthcoming
Wayne State University Law School Research Paper No. 2013-05
This Article examines whether contract design can influence the post-formation behavior of the non-drafting party. Repeat players that utilize the same contract for many transactions, as is the case for many consumer transactions, would be significantly advantaged if this were true. This Article suggests that several contractual features can be explained in terms of their ability to exploit the cognitive biases of, and to induce particular “advantageous” emotions from, the other party after the contract has been executed. These features may include arbitration provisions, disclosures in capital letter or bold face type, “reliance” language, and language framing possible losses in particular ways. Contracts can encourage individuals to feel shame, to blame themselves, to believe that contracts are sacred promises that should be specifically performed, to utilize faulty judgment heuristics when determining contract costs, and to rely on misperceived social norms with respect to challenging or breaching contracts. This may influence them not to breach or challenge an otherwise uneconomical, unconscionable, or illegal contract. Consequently, contract preparers may be able to enjoy the benefits of promises that often would not be realized if the non-drafting party was profit-maximizing like the contract preparer.
Number of Pages in PDF File: 54
Keywords: shame, regret, contract, moral promise, contract design, regret theory, cognitive bias, judgment heuristic, strategic default, efficient breach, arbitrationAccepted Paper Series
Date posted: April 9, 2013 ; Last revised: January 17, 2014
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